Non-Disclosure Agreements: I-Smart Developments Ltd v Currentbody.com Ltd.

Author Muhammad Karns Licence CC BY-SA 4.0 Source Wikimedia Commons

 

Jane Lambert

Intellectual Property Enterprise Court (HH Judge Hacon)  I-Smart Developments Ltd v Currentbody.com Ltd (Rev1) [2024] EWHC 2889 (IPEC) (15 Nov 2024)

On 6 Nov 2024, His Honour Judge Hacon heard an application by I-Smart Developments Ltd. ("ISD") to strike out part of the defence of Currentbody.com Ltd. to ISD's claim for breach of contract and registered and unregistered design infringement or alternatively summary judgment under CPR Part 24. He also heard an application by ISD, I-Smart Marketing SVCS Ltd. ("ISM") and Susan Patricia D'Arcy ("Ms D'Arcy") to strike out part of the particulars of claim of Shenzhen Kaiyan Medical Equipment Ltd. ("Kaiyan") for a declaration that ISD's registered design is invalid and an injunction restraining them from maintaining ISD's claim or any other claim for infringement of IP rights in Keiyan's products or from claiming any other IP rights in those products or alternatively summary judgment. By para [65] of his judgment in I-Smart Developments Ltd v Currentbody.com Ltd (Rev1) [2024] EWHC 2889 (IPEC) which he handed down on 15 Nov 2024, Judge Hacon dismissed both applications.

The Law

Judge Hacon directed himself at [23] that the main principles of law on the summary disposal of a claim or one or more issues within a claim were well established and were set out at para [15] of Mr Justice Lewison's judgment in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch), which the Court of Appeal approved in para  [24] of Lord Justice Etherton's judgment in AC Ward & Sons Ltd v Catlin (Five) Ltd [2009] EWCA Civ 1098. He added that although those principles had been stated in terms appropriate to an application to strike out, they also applied to an application for summary judgment as Lord Justice Floyd had confirmed in para [40] of his judgment in Price v Flitcraft Ltd [2020] EWCA Civ 850.

Mr Justice Lewison had said:

'The correct approach on applications by defendants is, in my judgment, as follows:

i) The court must consider whether the claimant has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 2 All ER 91;
ii) A 'realistic' claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8];
iii) In reaching its conclusion the court must not conduct a 'mini-trial': Swain v Hillman;
iv) This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10]
v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;
vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;
vii) On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725."

Procedural Issues

Although there is considerable overlap between strike-out and summary judgment applications, the procedural requirements are different.  Evidence in support of applications for summary judgment must be served in accordance with CPR 24.5 (3).  Lord Justice Floyd explained the reason for that requirement at para [43] of Flitcraft when it was contained in CPR 24.5 (1):

"Rule 24.5(1) requires a respondent who wishes to rely on written evidence at the hearing, to file that written evidence and serve copies on every other party to the application at least 7 days before the summary judgment hearing. Thus in an idealised case, a claimant can issue and serve an application for summary judgment to be heard in 14 days' time. The defendant must serve his evidence 7 days before the hearing, and the claimant must serve any evidence in reply at least 3 days before the hearing. If all this is done, the hearing can go ahead on the appointed day. The overall object of the rules and practice direction taken together is to ensure a fair hearing of the summary judgment application within a short time scale. The procedural safeguards, such as requiring notice of the rule under which the application is brought, identification of issues and/or a statement in the application notice or the evidence referred to in it that the applicant believes that the respondent has no real prospect of successfully defending the claim or issue are important protections aimed at ensuring that the overall procedure is fair.'

Judge Hacon remarked at [27] of his judgment:

"Often a party will apply both to strike out and for summary judgment without making any real distinction between the two alternatives. In my view, in such a case, if a party wishes to serve evidence solely in support of their application to strike out, with the result that the evidence is not subject to the procedural safeguards of Part 24.5, the applicant's intention to limit the purpose of the evidence in that way should be clearly stated at the time of service so that the respondent knows where they stand."

In this case, the applicants did not distinguish between the evidence filed in support of their strike-out application and that filed in support of their summary judgment application.  Judge Hacon had to treat all the evidence that had been filed by the applicants as intended to support the application for summary judgment. 

Construction of Contracts

Lord Hamblen summarized the relevant principles in Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2023] WLR(D) 30, [2023] WLR 575, [2023] UKSC 2, [2023] 1 WLR 575at para [29] of his judgment:

"The relevant general principles are authoritatively explained by Lord Hodge JSC in his judgment in Wood v Capita Insurance Services Ltd  [2017] AC 1173 at paras 10-15. So far as relevant to the present case, they may be summarised as follows:

(1) The contract must be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean.
(2) The court must consider the contract as a whole and, depending on the nature, formality and quality of its drafting, give more or less weight to elements of the wider context in reaching its view as to its objective meaning.
(3) Interpretation is a unitary exercise which involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its implications and consequences are investigated.'

The Non-Disclosure Agreement

During 2017 ISM was in negotiations with Kaiyan for the supply of products to be used in phototherapy. The parties signed a mutual non-disclosure agreement ("!the NDA") several clauses of which are set out in para [30] of Judge Hacon's judgment.  Pursuant to that agreement Kaiyan designed a face mask and neck bib which designs it emailed to ISM. ISM and ISD approved the designs and ordered supplies of those products from Kaiyan.  In 2019 ISD contracted with Currentbody to distribute those items.  In June 2020 ISD applied to register the designs of the masks and bibs.  One of the face mask designs was declared invalid but another mask design and the design of the bib were registered.   

The litigation started because ISD and ISM quarrelled with both Kaiyan and Currentbody.  Kaiyan stopped supplying ISD and ISM and began to supply Currentbody directly.  Part of Currentbody's defence to ISD's claim was that ISD had breached clause 2.5 of the NDA by registering Kaiyan's designs and claiming unregistering design right in the design that had not been registered.  Clause 2.5 of the NDA provided:

"Recipient hereby agrees to each of the following as it pertains to the Confidential Information received 

.............................................
(5)  not to apply for or claim any intellectual property right based on the Confidential Information..."

The same point was also the basis of Keitan's claim against ISD, ISM and Ms D'Arcy.   Those defendants argued that the allegation that ISD had breached the NDA was hopeless and bound to fail at trial.  That was also the gist of their strikeout and summary judgment applications.

Grounds of the Application 

ISD's arguments against Currentbody were as follows:

• Currentbody had not been privy to the NDA and could not enforce it;
• almost all the events of which Currentbody complained occurred after the expiry of the NDA; and
• Keiyan's designs were already in the public domain when ISD applied to register them.

As for the case against ISD, ISM and Ms D'Arcy, Kaiyan had pleaded that ISM's disclosure of the designs to ISD enabling ISD to register them was a breach of the NDA.  It also argued that the infringement claim was a further breach.  

ISD, ISM and Ms D'Arcy attacked Kaiyan's statement of case on two grounds,  First, they contended that the pleading was consistent only with the disclosure of the designs by ISM to ISD having been done to further the arrangement for the supply of the products by Kaiyan to those companies and distribution by Currentbody and nothing else.   Secondly, they argued that ISD's application for registration and its action for infringement happened long after the expiry of the NDA.

Privity

In response to ISD's privity argument, Currentbody contended that it was entitled to rely on s.1 of the Contracts (Rights of Third Parties) Act 1999. It argued that the purpose of clause 2.5 of the NDA was to benefit Kaiyan's distributors by allowing them to market Kaiyan's products without risking a claim from ISM or ISD.  Accordingly, the NDA granted a benefit to Currentbody as a member of the class of distributors.

ISD attempted to file evidence one day before the hearing contending that the Act would not assist Currentbody for the following reasons.  First, there was no express provision that Currentbody could enforce any term of the NDA.  Secondly, none of its terms purported to confer any benefit on Currentbody.  Thirdly, Currentbody was not expressly identified in the agreement by name as a class member or as answering a particular description. 

Currentbody objected to the admission of that evidence on two grounds.  First, ISD had not complied with CPR 24.5 (1) (b) in that its application notice did not identify concisely any point of law or document relied upon. Secondly, its evidence was not served 3 days or more before the hearing as required by CPR 24.5 (3) (b). Judge Hacon upheld the objection.  He said at para [37] that ISD had plenty of time to signal its intended reliance on s.1 (3) of the 1999 Act. His Honour thought that there was room for argument about its effect in the present case, particularly with regard to the correct meaning of a 'third party … expressly identified … as answering a particular description but [which] need not be in existence when the contract is entered into'. There might be authority on the point that had to be considered by the court.   He concluded at [38] that ISD had not complied with either CPR 24.5 (1) (b) or 24.5 (3) (b). Subject to other arguments, the issue with respect to the Contracts (Rights of Third Parties) Act 1999 had to go to trial.

Expiry of the Non-Disclosure Agreement

According to clause 12 of the NDAt, that agreement was due to expire on 17 Aug 2020.  ISD tried to file evidence just before the hearing that, other than the registration of the designs, all the acts of which Currentbody complained occurred after that date.  Currentbody objected to the admission of that evidence on the grounds that it was filed late and ISD had not mentioned the point in its application notice.  The judge accepted Currentbody's submission.

Clause 3.1 of the NDA

Clause 3.1 of the NDA provided:

"Confidential and restriction of use obligations as contained herein shall not apply for such information that the Recipient can demonstrate through appropriate written evidence:-
(1) now or hereafter becomes generally known or available to the public through no act or omission on the part of Recipient."

ISD argued that it was entitled to register the face mask and neck bid designs because they were known or available to the public through no act or omission on ISM's part.  Currentbody's reply was that both Kaiyan and ISM had breached their obligations of confidence under the NDA.  Judge Hacon said at para [45] that Currentbody's response was sufficiently arguable to go to trial. It raised in part a question of construction of clause 3 (1) and this was likely to be an instance in which construction required consideration of the purpose of clause 3 (1) by reference to the factual matrix. The issue also raised a partly factual investigation into whether ISD or ISM was the relevant actor as between the two companies and whether that mattered.

Currentbody had other arguments on the construction of the NDA and the circumstances in which it was entered.  They raised factual issues that the judge thought could best be determined at trial.

Kaiyan's Claim

The learned judge rejected the strike-out and summary judgment application by ISD, ISM and Ms D'Arcy. He found that Kaiyan's statement of case alleged that the disclosure of the designs by ISM to ISD was done for purposes other than those permitted by the NDA.  He observed that ISD had registered Kaiyan's designs while the NDA was still in force.  The question of when ISD's claim to unregistered design right in the design of one of the face marks arose depended on what was meant by "claiming". That was also an issue that would have to go to trial.  He thought that Kaiyan's allegation that the infringement claims occurred before the non-disclose agreement had expired was on weaker ground but that was a relatively minor point that was better explored with other matters at trial.  There were other reasons why the case should go to trial even if the applicants' arguments had been correct.

Comment

The main takeaway from this case is that while there has been a convergence of the principles governing strike-out and summary judgment applications, there is still a difference in the procedural requirements.  Notably, there are strict time limits for the service of evidence in reply to summary judgment applications. Judge Hacon's observation that "if a party wishes to serve evidence solely in support of their application to strike out, with the result that the evidence is not subject to the procedural safeguards of Part 24.5, the applicant's intention to limit the purpose of the evidence in that way should be clearly stated at the time of service so that the respondent knows where they stand" should be heeded.  The outcome of these applications might have been different had those procedures been followed.

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